As more Kenyans look for ways to grow their money outside of traditional banking, SACCOs and Money Market Funds have emerged as two reliable options. But how do you decide which one suits you best?
Kenyans.co.ke spoke to Jeremiah Odera, a financial expert who has been in the industry for over eight years and has been investing with the traditional banks, SACCOs, and MMFs to give us a detailed insight into how the three operate.
Understanding the Basics
SACCOs are member-owned cooperatives that offer savings and loans at affordable rates. Members pool their resources to provide credit to one another. On the other hand, MMFs are unit trusts that invest in short-term, low-risk financial instruments like Treasury bills, commercial paper, and bank deposits.
MMFs typically offer an annual net return of 8–11 per cent, depending on the fund manager and market performance. These returns are calculated daily and compounded monthly. SACCOs, meanwhile, pay dividends and interest on deposits, often ranging between 8–10 per cent annually, based on the SACCO’s profitability and policies.
Liquidity and Access to Funds
MMFs provide high liquidity—most allow withdrawals within 24 to 72 hours. This makes them suitable for short-term goals and emergency funds. SACCOs, however, often have limited withdrawal options, as deposits are intended to build long-term savings and qualify for loans.
According to Odera, generally, if one is considering both a future investment scheme and a wealth-building plan, then SACCOs offer the ideal investment destination.
"If you are looking to build wealth, then SACCOs are the ideal investment destinations. MMFs, on the other hand, are good but ideal for quick money; what is referred to [as] a high liquidity option. This means that in MMFs you can easily get back money, but with SACCOs you have to save for some duration, usually three to five years, to be considered for loans," Odera said.
Loan Accessibility
SACCOs shine when it comes to borrowing. Members can access loans at relatively low interest rates, typically 8 per annum, after a few years of saving. MMFs do not offer credit facilities, making them less ideal if you're also looking to borrow.
MMFs, however, depend on the interest rates they offer, which are tied to key economic factors such as the stability of the shilling, and the Central Bank of Kenya sets base lending rates.
''In as much as MMFs have fluctuations in rates, with SACCOs, just be assured that the rates can never go down. The beauty is that you earn dividends on your investments, you are simply a shareholder in a SACCO,’’ Odera added.
When it comes to savings, some SACCOs offer to buy out existing bank loans for their members. The advantage is that you then repay the loan at the SACCO's interest rates, which are often lower than those charged by banks.
Risk and Regulation
MMFs are regulated by the Capital Markets Authority (CMA) and managed by licensed fund managers. They are generally considered safe, though not risk-free. SACCOs are regulated by SASRA (SACCO Societies Regulatory Authority), but risk varies depending on the SACCO's governance and financial health.
Experts advise that you shop around for the best SACCO with no historical cases of governance and management issues.
Charges
MMFs may have minimal management fees that slightly impact returns, but these are generally low. SACCOs, on the other hand, may charge membership, maintenance, and loan processing fees, though experts note that SACCO loan processing fees are often lower than those of traditional banks.
If you are considering a loan, SACCOs are usually a better option than banks due to their favourable interest rates, especially if you have consistent savings and a reasonable repayment period.
Consider joining a SACCO if you are looking for affordable loans, value a community-based financial model, and are committed to regular saving.
Expert Tip: Diversify
Experts advise that you do not have to choose just one savings point. Savvy savers should split their funds, putting part into MMFs for liquidity and part into SACCOs for long-term financial planning and loan access.
Both SACCOs and MMFs offer valuable benefits depending on your financial goals. Understanding their differences in structure, returns, accessibility, and risk can help you make an informed decision and grow your wealth with confidence.
Odera, however, advises that one should study the market carefully, along with the various factors that influence it.
"The shilling has been fairly stable against the dollar for the last eight months, and ideally, this is the best time to try the MMFs," Odera pointed out.
"In summary, it is good to create what is referred to as a portfolio in finance. It is good to have your money across the different investment and savings schemes; they often become handy."
